econ final exam

Which definition(s) of the money supply include(s) only items that are directly and immediately usable as a medium of exchange?

M1

Melita heard that there had been inflation last month. She laughed and did not believe it. When asked why not, she said that last week she spend less at the grocery store because the cost of food had come down. Which of the following is the correct response?

Melita is wrong, food prices may have fallen, but other prices have risen so the average price of goods is higher

The phases of the business cycle from points A to D are, respectively

Peak,recession,trough,expansion

Suppose the Federal Reserve increases the amount of reserves by $100 million and the total money supply increases by $500 million. Instructions: Enter your answers as a whole number. a. What is the money multiplier? b. Using the money multiplier from part a, how much will the money supply change if the Federal Reserve increases reserves by $50 million?

a. 5 b. 250 million

A tax imposed by the U.S. government on imported Chinese frozen shrimp would be an example of

a tariff

Each scenario includes two transactions. Determine whether these transactions will increase GDP. a.Sean grows vegetables in his garden to make salads for his family. Mike purchases vegetables at a local farmers' market to make salads for his family. b. Sam volunteers at the local library tutoring students in math. Laura tutors students in math, but instead of receiving money, parents often make her meals or give her small gifts. c. Neil sells illegal drugs. Morgan creates copies of music downloads and sells them.

a. Only Mike's transaction is included in GDP. b.Neither Sam nor Laura's transaction is included in GDP. c.Neither Neil nor Morgan's transaction is included in GDP.

The unemployed are those people who

are not employed but are seeking work

Fractional reserve banking refers to a system where banks

hold only a fraction of their deposits in their reserves

Mexico has a comparative advantage in producing corn

if its opportunity cost of producing corn is lower than the opportunity cost in other countries

An example of an intermediate good would be

paper and ink bought by a publishing company

U.S. exports create a _____.

supply of foreign currencies and a demand for dollars in the foreign exchange markets

Which of the following statements about trade barriers is true?

the economic costs of trade barriers exceed their economic benefits, creating an efficiency loss for society

Credit card balances are not considered to be money primarily because they

they are not part of people's wealth

If the dollar-yen exchange rate is $1 for 125 yen, then a Honda CR-V priced at 3,125,000 yen would cost a U.S. importer of such a vehicle _____.

$25,000

The following is national income account data for a hypothetical economy in billions of dollars: gross private domestic investment ($320), imports ($35), exports ($22), personal consumption expenditures ($2,460), and government purchases ($470). What is GDP in this economy?

$3,237 billion

Assume an exchange rate of $1 = 0.60 British pound. A U.S. product sells in Britain for 18 pounds. By what percentage will dollar revenues change if the dollar price of a pound falls to 0.50 pound?

+20%

A person's real income will increase by 3% if her nominal income increases by

5% while the price index rises by 2%

Which of the following purchases do national income accountants consider to be investment?

A new house

If the United States places a limit on Chinese textile imports, this would be an example of

a quota

The exchange rate for the Mexican peso changes from $1 = 5 pesos to $1 = 6 pesos. This change will lead to _____.

a decrease in U.S. exports to Mexico

In each of the following examples, identify whether the individual is experiencing cyclical unemployment, frictional unemployment, structural unemployment, or no unemployment. a. Eduardo has recently moved to a new city with his wife who was offered a great job there. He is trying to find a position in the same industry he worked in before relocating. b. Derek worked for a large telecommunications firm that went bankrupt last year due to a recent recession. He has since tried to find work with one of the firm's competitors, but good jobs are currently hard to come by. c. Drew lost his job at a car manufacturer last year. He spent 6 months applying for every job possible before giving up 2 months ago. He now spends his day playing Xbox. d. Paula has 20 years of experience in manufacturing. Her employer, and many other manufacturing firms, recently closed their U.S. plants. She would like to find a similar job but is unable to find anything that utilizes her skills. e. Katherine works part-time at a small retail store. She would like to work full-time, but her employer is currently unable to extend her hours. f. Tyrell just graduated from college with a business degree. He is currently looking for a job in banking in the major city he just moved to. g. Mike is a contractor who has been unable to find work, since most businesses are delaying or canceling their construction plans due to economic uncertainty in the coming year. h. Meg used to own and run her own bookstore. Her sales declined due to competition from online retailers. She has not been able to find any work related to her skills in the diminishing retail industry for books.

a. frictional unemployment b. cyclical unemployment c. not unemployed d. structural unemployment e. not unemployed f. frictional unemployment g. cyclical unemployment h. structural unemployment

Determine whether each of the following examples would be included in Gross Domestic Product (GDP). a. When Judy went to the grocery store yesterday, she bought three pounds of potatoes. b. Ford Motor Company buys four tires to put on a new Ford Mustang. c. The U.S. Air Force purchases two new fighter jets from Boeing. d. When Joey had his birthday last week, his grandmother sent him a $100 bill that he could spend.

a.purchase is recorded in the consumption expenditures portion of GDP. b.intermediate good and would not be included in GDP. c.recorded in the government purchases portion of GDP d.$100 would not be included in GDP.

Nominal GDP is the market value of

all final goods and services produced in an economy in a given year

GDP can be calculated by summing

consumption, investment, government purchases, and net exports

The Federal Reserve System performs many functions but its most important one is

controlling the money supply

If a nation imposes a tariff on an imported product, then that nation will experience a(n)

decrease in quantity supplied and an increase in the price of the product

When the U.S. dollar decreases in value relative to foreign currencies, the _____.

demand for U.S. exports will increase

For American buyers, there is a decrease in the relative prices of Japanese goods when the _____.

dollar appreciates

The demand curve for British pounds (in terms of U.S. dollars) is _____.

downward-sloping because a lower dollar price of pounds means British goods are cheaper to Americans

Suppose the United States eliminates high tariffs on German bicycles. As a result, we would expect

employment to decrease in the U.S. bicycle industry

One major advantage of money serving as a medium of exchange is that it allows society to

escape the complications of the barter

The value of corporate stocks and bonds traded in a given year is

excluded from the calculation of GDP because it does not represent new production

In calculating the unemployment rate, "discouraged" workers who are not actively seeking employment are

excluded from the labor force

In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?

expansion

When a nation starts opening up to international trade, it will see falling prices for

goods that it imports

Nations specialize in production and engage in international trade in order to

increase consumption and income

A commercial bank has no excess reserves until a depositor places $5,000 in cash at the bank. The commercial bank then lends $4,000 to a borrower. As a consequence of these transactions, the size of the money supply has

increased by $4,000.

The Federal Reserve system is an

independent agency of government

The natural rate of unemployment

is equal to the total of frictional and structural unemployment.

The primary gain from international trade is

more goods than would be attainable through domestic production alone

Joe deposits $200 in currency into his checking account at a bank. This deposit is treated as

no change in the money supply because the $200 in currency has been converted to a $200 increase in checkable deposits

Full-time homemakers and retirees are classified in the BLS data as

not in the labor force

U.S. businesses are demanders of foreign currencies because they need them to _____.

pay for goods and services imported from foreign countries

The effects of a "Buy American" campaign, wherein U.S. consumers are encouraged to only buy goods produced domestically would have results similar to a(n)

quota

Nominal GDP differs from real GDP because

real GDP results from adjusting for changes in the price level

If U.S. citizens flock to Canada for summer vacations and buy more Canadian goods and services, _____.

the price of U.S. dollars in Canadian dollars will fall

When inflation occurs

the purchasing power of money decreases

The balance of trade identity says the current account is equal to _____.

the sum of the capital amount and the financial account

The functions of money are to serve as a

unit of account, store of value, and medium of exchange

The income approach to measuring GDP

uses the payments paid to the four resources used to produce goods and services to estimate GDP